Politicos flip on corporate welfare

Both major political parties profess to oppose corporate welfare. In fact, it is an invective they hurl against each other in political battles.

In reality, however, both parties are suckers for businesses pleading for special treatment.

The most egregious example currently pending before the Arizona Legislature involves a refundable income tax credit for the movie industry (Senate Bill 1708).

A tax credit can sometimes plausibly be argued not to cost the state anything. If some business activity wouldn’t take place absent the credit, then offering the credit doesn’t deprive the state of any revenue it otherwise would have received.

That argument is unavailable for refundable tax credits, as is being proposed for the movie industry. With a refundable tax credit, if the income tax owed is less than the credit, the state cuts the business a check for the difference. It is equivalent to an appropriation from the state’s general fund to the business, paid for by other taxpayers.

In the case of SB 1708, the proposed subsidy is an eye-watering $150 million a year in refundable tax credits. To make movies.

In the first place, this is an insane subsidy competition for Arizona to enter. According to the Legislature’s budget staff, roughly 30 other states offer film tax credits. Apparently a lot of states, or at least the politicians of those states, want to be in the movies. The bidding war to attract the cameras will be unceasing. If $150 million a year gets us into the action today, it won’t be enough tomorrow.

Other than a little screen time, there’s not much Arizona can expect for putting in play $150 million a year in general fund revenue.

The budget staff’s review of film tax credits in other states indicates that they routinely cost more than they produce in tax revenue. Even the study produced by proponents of the credit finds that it would take eight years before the program got into the black for the state’s general fund.

Despite all that, the bill has passed the Senate and the House Appropriations Committee. It has been stalled in the House for over a month. But its prime sponsor is David Gowan, R-Sierra Vista, who is also Senate appropriations chairman. So, it’s believed that the bill will be part of the end-of-session budget gamesmanship.

Democrats claim to be the defenders of the state’s general fund against the predations of Republicans, to protect funding for education and social welfare programs.

Even the study produced by the proponents says that SB 1708 would be a general fund loser for the next seven years. And at a potential loss of $150 million a year, no small sum.

Yet, so far, not a single Democrat in the Legislature has voted against SB 1708.

Contrast that with how Democrats responded to a modest proposal to slightly reduce the property tax assessment ratio for all businesses (Senate Bill 1093), which is projected to cost the state roughly half of the potential price tax of SB 1708. Every Democrat in the Legislature voted against it on final passage save one, Sean Bowie from Phoenix.

Republicans profess to believe in a level tax and regulatory playing field for all businesses, not picking winners or losers. SB 1708 clearly vitiates those principles.

Republicans in the Legislature have shown more skepticism toward a massive subsidy for the movie industry than Democrats. In the Senate, the split among Republicans was nine in favor and seven opposed. A majority of Republicans on the House Appropriations Committee actually voted against the bill, although the unanimous support from Democrats was enough to get it past that post.

This is not an isolated case. Arizona took a big leap into the subsidy business when Jan Brewer was governor.

The state has an income tax credit for research and development costs. Except for small businesses, it’s not refundable.

For large multistate businesses, Arizona has a very favorable corporate income tax regimen. As a result, there are nearly $2 billion in unused R&D tax credits floating around. These big corporations aren’t paying the state enough in income tax to absorb the credits.

Sen. President Karen Fann, R-Prescott, has a bill (Senate Bill 1643) that would make these unused tax credits partially refundable, up to a cap of $50 million a year. Again, this means that the state would be cutting these corporations a check out of the tax revenue coughed up by other taxpayers.

The bill actually failed the first time the full Senate voted on it. Upon reconsideration, it passed, with eight senators changing their vote from no to yes. Seven of them were Democrats.

Both parties are against corporate welfare. Except when they’re voting for it.